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SUPPLY CHAIN STRATEGIES FOR WINNING ORDERS AND THE PARADOX OF FOCUSED SUPPLY CHAINS AND EFFICIENT USE OF INFRASTRUCTURE Given that it is usually the case that several different order winning/ qualifying clusters exist, one can question how one common supply chain can serve these different clusters well. A single supply chain cannot serve both order clusters without mediocrity and frustration. It is impossible with one supply chain to perform best on all criteria simultaneously as they are invariably in trade-off with each other.
If, for example, one supply chain serves a cluster with price as only order winner and at the same time it serves a cluster with delivery speed as only order winner, then one will invariably suffer from the other, resulting in mediocre performance on both supply chains. If competitors are focused on these order clusters exclusively, they will have no difficulty in winning orders from you if they have organized to maximum effectiveness for that cluster of orders. As a consequence it is often imperative to use different supply chains for different customer order clusters. This results in "focused supply chains," similar to "focused factories" that were introduced in the 1980s. By focusing attention on a limited set of competencies and customer expectations, focused supply chains allow for optimal performance towards the customer. There are a few problems with focused supply chains. First, some of the facilities may be so expensive to duplicate for each supply chain that you may want them to remain of common use to both supply chains. That is the paradox of focus versus efficiency. Efficiency considerations may indeed force you not to focus the supply chain totally, resulting in a compromise solution. Second, as markets are dynamically changing, the focus solution of today may be the wrong solution for tomorrow. Supply chains are not changed easily, so it is important to set up separate supply chains only when you are reasonably sure that the order cluster that it serves will remain an important business opportunity for years to come. A PRACTICAL CASE: A PLASTICS COMPONENT MANUFACTURER AND ITS DIFFERENT SUPPLY CHAINS The company is a global plastics components manufacturer producing plastic plates, tubes, and rods (called "shapes") in different sizes and thicknesses, delivered to distributors to be machined to parts for the OEM industry. It also uses the shapes internally to machine parts in its own machine shops for direct OEM deliveries, bypassing the industrial distribution channels. (See figure 2.) The case study is concentrating on the European situation where up to 1997 a "local for local" strategy was followed: what was made in a region served the market of that region (often specific countries). Some 10 factories were spread over Europe—each of them with quite a different product mix and focus due to the bonding with the different local market situation. This had been a successful strategy for many years as the customers appreciated and valued the proximity of the supplier. However, as market dynamics changed, due to globalization of business, the financial requirements of the shareholders were no longer met by the company and a project was started to look for opportunities to increase the return on capital employed (ROCE) significantly.The starting situation was as follows: • "local for local" leads to sub-optimization on a European scale • lack of overall company vision and strategy • inefficiencies in shapes manufacturing operations (both in manufacturing and distribution logistics)
• inefficiencies and lack of focus in parts manufacturing machine shops
• lack of focus due to distraction by other businesses that had been historically developed to serve different occasional demands. Analysis of order buying patterns resulted in the identification of two major order clusters:
• semi-finished product delivered to distributors who deliver to machine shops who produce parts based on customer drawings
- order winners: low cost, speed of delivery, on-time delivery - order qualifiers: reliability, quality • co-designed parts, manufactured by specialized machine shops and delivered to innovative OEM customers who gain recognized competitive advantage from using the part due to its novel application or its advanced material usage. - order winners: capability to co-design (understand customer's business and apply own technology in innovative ways), partnership
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order qualifiers: speed of
development, quality, functionality. All machine shop work that competed against machine shops served by distributors was progressively eliminated and replaced by high-value co-partnership part development and manufacturing. This implied disposing (selling, management buy-out) of some of the machine shops and refocusing the remaining machine shops to specific competencies serving specific market sectors. The results are spectacular: after an implementation of approximately 18 months, ROCE had doubled in 1998 compared to 1996, proving the validity of the concept in the field. STAY CONNECTED To stay current on Lean Management Basics and Best Practices, subscribe to our weekly MBBP Bulletin... and we'll send you our PowerPoint presentation "How to Survive in an Entirely New Economy." All at no cost of course. Your personal information will never be disclosed to any third party. privacy policy
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